Milk supply will still have to be controlled when quota expires

John Shirley

The most remarkable development within agriculture in recent times has been the closing of the gap between world and EU prices for farm products. It started with grain but now applies in milk and meat as well.

The most remarkable development within agriculture in recent times has been the closing of the gap between world and EU prices for farm products. It started with grain but now applies in milk and meat as well.

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Milk supply will still have to be controlled when quota expires

Independent.ie

The most remarkable development within agriculture in recent times has been the closing of the gap between world and EU prices for farm products. It started with grain but now applies in milk and meat as well.

For the Irish farmer, a prospect that once was unthinkable -- producing at world prices -- is now viewed almost benignly. Indeed, when it comes to milk, some Irish farmers are salivating at the prospect of quota ending.

So much so that the country is again in superlevy territory with some individuals facing ruinous fines.

Steady on there. As they say on the investment ads; prices may go down as well as up. Let's have more planning.

There's too much loose talk of unfettered Irish expansion. That talk is alarming our EU partners and could be counterproductive. Expansion should be controlled and adjusted according to market demand and expansion opportunities must be fairly distributed between suppliers and new entrants. Quota may be going but some other regime to regulate supply will have to apply in its place.

This was the message that I got from the first of a series of IFA consultation meetings on preparation for the post-milk quota era. The meeting, held in Kilkenny, was addressed by Anne Randles, Secretary of the Irish Dairy Board, and also IFA dairy chairman Kevin Kiersey and dairy secretary Catherine Lascurettes. Dairy co-op board members were also present.

Ms Randles was positive on overall prospects for growth in demand for dairy products. "World population continues to surge and there is a tidal rise in demand across Eastern Europe, Asia, Africa and South America," she said. "However, higher prices are dampening demand in some quarters. Currently cheese demand is somewhat subdued, but butter is strong with low stocks.

"What will a 50pc growth in milk output, as envisaged in Food Harvest 2020, look like? We need to know that answer now to plan our marketing strategy," said the IDB representative.

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Like never before, the spotlight is on the IDB, which handles 80pc of the nation's cheese exports, 70pc of the butter and 50pc of the milk powder.

It has a presence in 80 countries, but with one third of the business done in the UK and 47pc in the rest of the EU, only about 20pc is left going to the rest of the world. To accommodate the expanding milk output the international business will have to grow to one third of the IDB turnover, Ms Randles told the Kilkenny meeting.

The strengths of the IDB include its international brand portfolio, its subsidiaries and networks in key markets and its distribution routes to international markets backed by strong working capital. The Kerrygold brand dominates butter in Germany and is growing in the US. Pilgrim's Choice cheese is number two in the UK.

The perceived weakness of the IDB and of Irish dairy marketing is the fracturing of the activity between the Board and dairy co-ops and plcs.

Globally, demand for milk products is predicted to grow by almost 2.5pc a year. Chinese and Indian consumption is growing by a huge 4-6pc a year but so too is milk output in these countries.

Contrary to popular perception, Ms Randles doesn't see China as an immediate market for expanding Irish milk output. "Leave China to New Zealand's commodity sales which enjoy the advantage of not paying the 15pc tariff on their dairy exports to China," she said.

Success

Instead, the IDB spokesperson was looking for growth in Irish exports to the US, Africa and Russia. Across Northern Africa the Board is enjoying good success with the marketing of a fortified milk powder branded as Beo. Algeria, a huge importer of milk powder and cheese, is also developing well for the IDB.

Within the EU the board is working on markets for non-cheddar cheeses. The collaborative research with Teagasc in Moorepark is geared towards this project.

A speaker from the floor asked why the IDB received such bad press. Ms Randles replied that the board received the Exporter of the Year award last year and that it would only be used by the industry if it continued to perform.

The Kilkenny meeting was reminded that the EU continued to operate with a 7-10pc milk surplus and that other member states were also planning to expand output once quotas were gone.

"News of Ireland's Food Harvest 2020 plans is all over Europe and is scaring the pants off them," said IFA's Catherine Lascurettes. "I spend my time in the EU dampening down our milk expansion capabilities."

Other countries, such as Denmark and Holland, have plans to increase milk but they are cute and not talking about it, the meeting was told.

There is a 1pc increase in quota in the pipeline for the next two years but nothing for the 2014-2015 season.

This is insufficient for many Irish farmers who are already down the expansion path. While the EU Commission wants rid of quotas, some strong member states want the system retained. Any reopening of the issue in the planned 2012 review could rebound on Ireland.

The IFA dairy secretary called for an alignment of production with processing and marketing so that there is an orderly transition to post-quota. Some mechanism is needed to fairly distribute market-led expansion between existing suppliers while at the same time providing an entry mechanism for new producers. The IFA sought suggestions on such a mechanism in advance of formulating a policy document before the end of this year.

The issue of the large numbers of co-op dry shareholders and the lack of clout for active dairy farmers needs to be addressed, the meeting was told.

In 2009, the IFA commissioned the Prospectus report which concluded that there was a saving of 2c per litre from a rationalisation within Irish dairy processing.

The perception is that nothing has happened, but Kevin Kiersey told the Kilkenny meeting that some behind the scenes action is under way but added that greater engagement with producers was required from the dairy co-ops.

Overall, because of seasonality, processors are working at about 60pc capacity.

It is in the interest of all that integration and planning be brought into Ireland's post-quota milk regime.